Key Milestones in 2019 for Oil Prices

The year 2018 has been quite a rollercoaster. It started off with optimism, veered into uncertainty and ends with the blues. Oil prices started on an upward swing at US$66/b for Brent, reached a peak of US$81/b, then fell to a low of US$49/b. The market swang from balanced supply/demand to a supply crunch to a glut – dealing with American sanctions on Iranian crude exports, surging American crude oil production, the implosion of Venezuela’s economy and signs that the global economy might be entering a slowdown. If this was a wild ride, what could 2019 hold?

Quarter 1 2019 – The crude oil market will start the year off in a slightly stronger position than it ended 2018, bouncing back from recent lows at US$54/b. The new OPEC+ supply deal – which aims to curb production by 1.2 mmb/d – goes into effect, and traders will be watching to see if the cuts have a material impact. Sometime in the first quarter, American crude oil production will hit 12 mmb/d, cementing its position as the world’s largest oil producer as Saudi Arabia and Russia cut back output as part of the OPEC+ supply deal. Upstream production curbs in Canada’s Alberta – hampered by pipeline capacity – will continue. A new Democrat-led House of Representatives takes office in the US, which could frustrate President Donald Trump’s agenda, with the threat of investigation and impeachment raising the risk of triggering volatility.

Quarter 2 2019 – OPEC+ meets in April to review the supply deal agreed in December 2018. Saudi Arabia has been promising ‘deeper cuts’, but there will be pushback from some members worried about ceding ground to American shale. Russia has already expressed some reticence, and Iran is unlikely to support another major cut. The power of OPEC – which has already lost Qatar as a member – will be questioned. A lot will depend on the question of American waivers of Iranian crude imports for eight major buyers, which expire in May. The waivers should continue – which should allow room for negotiation – but a shock could happen if they are allowed to expire.

Quarter 3 2019 – The first of a new wave of pipelines connecting the Permian Basin to the US Gulf Coast should begin commissioning and operation. With capacity of at least an additional 1.5 mmb/d of American shale oil making it to market, this could trigger another boom in Permian output and change the dynamics of the global oil market, just as American LNG has upended the global gas market. OPEC’s bi-annual Vienna meeting in June will address this. Will there be a place for light, sweet US crude in the world, particularly since there will continue to be a global oversupply of gasoline? Perhaps for petrochemical use, but refining demand will increasingly be geared toward medium and heavier grades to be cracked by upgraded refineries into gasoil ahead of the IMO’s new rules of fuel oil and sulfur levels rolling out in 2020

Quarter 4 2019 – Depending on market conditions, American crude production could be on the cusp of hitting 13 mmb/d – presenting yet another problem as OPEC meets in December. The inexorable rise of US oil is inevitable, and we could see OPEC switch tactics from accommodation to aggression. If the Iranian crude export waivers are extended in May, they will end in this quarter – throwing another finicky variable into a complicated year. The year might end the way it began, characterised by a frustrating stalemate between free market and controlled oil production.

Major predictions for 2019 oil prices (Brent):

• Bloomberg (survey): US$70/b
• Citigroup: US$59/b
• Morgan Stanley: US$78/b
• EIA: US$61/b
• Standard Chartered: US$78/b
• JP Morgan Chase: US$74/b
• Wood Mackenzie: US$66/b

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